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The EUR/GBP currency pair staged a dramatic rally on Friday, surging 100 pips from its weekly low of 0.8611 to reach 0.8711. This sharp upswing was driven by a dismal US jobs report and mounting concerns about the UK economy, as investors brace for the Bank of England’s (BoE) upcoming monetary policy decision. A weaker-than-expected US Nonfarm Payrolls (NFP) report has sparked fears of stagflation across the Atlantic, while disappointing UK manufacturing data has heightened expectations for a BoE rate cut next week.
US Jobs Report Sparks Stagflation Fears
The US Bureau of Labor Statistics (BLS) reported that the US economy added a mere 73,000 jobs in July, a significant drop from June’s 147,000 and well below market expectations of 110,000. Adding to the gloom, revisions to prior months’ data revealed a combined downward adjustment of 258,000 jobs for May and June, signaling deeper weaknesses in the labor market. Despite the lackluster job growth, the unemployment rate edged up slightly from 4.1% to 4.2%, still within the Federal Reserve’s acceptable range. The disappointing NFP figures have lent credence to warnings from Fed Governors Waller and Bowman, who recently highlighted emerging cracks in the US labor market, fueling speculation about a potential stagflation scenario.
Eurozone Inflation Holds Steady, UK PMI Slumps
In the Eurozone, the Harmonized Index of Consumer Prices (HICP) remained steady at 2.4% year-on-year, while core inflation exceeded expectations at 2.0%, underscoring resilience in the region’s economy. In contrast, the UK’s Manufacturing PMI fell to a concerning 48.0, signaling contraction and amplifying expectations for a BoE rate cut next week. The combination of these factors has weighed heavily on the British pound, contributing to the EUR/GBP’s upward momentum.
Market Eyes BoE’s Next Move
As the BoE’s monetary policy decision looms, the confluence of weak UK economic indicators and a faltering US labor market has positioned the EUR/GBP for further volatility. The pair’s rally reflects growing investor confidence in the euro relative to the pound, with the US jobs shock amplifying global economic uncertainty. With the EUR/GBP now trading at 0.8711, all eyes are on the BoE’s next steps and whether the US economy can avoid slipping into stagflation.
